Transport. 


Statement  by  the  Trustees 

of  the 

Boston  Elevated  Railway  Co. 


In  connection  with  the  Estab- 
lishment of  a Ten-cent  Fare 
Effective  July  10,  1919 


Get 


▼.  public  Usiuiiy 


%*** 

Boston,  June  30,  1919. 

Chapter  159,  Special  Acts  of  1918,  inaugu- 
rated an  experiment  with  public  control  of  a 
street  railway.  Private  management  of  the 
Boston  Elevated  Railway  Company  under  a 
charter  permitting  not  over  a five  cent  fare 
under  a public  policy  that  imposed  upon  it 
subway  rentals  and  street  improvements, 
and  with  rising  cost  of  supplies  and  ma- 
terials to  add  the  finishing  touch,  had  result- 
ed in  failure. 

Three  courses  were  open  to  the  Legisla- 
ture. It  could  let  the  property  go  to  ruin 
regardless  of  iaterrupted  service  and  waste- 
ful cost,  or  it  could  embark  upon  govern- 
ment ownership  and  control,  or  it  could  try 
out  government  control  with  private  owner- 
ship. The  last  plan  was  adopted.  The 
property  in  effect  was  leased  by  the  stock- 
holders to  the  state  for  ten  years  at  a fixed 


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rental  paid  in  the  form  of  interest  on  out- 
standing bonds  and  dividends  on  outstand- 
ing stock.  The  dividend  for  the  first  two 
years  was  fixed  at  five  per  cent.,  for  the  next 
two  years  at  five  and  one-half  percent.,  and 
thereafter  at  six  per  cent,  on  par  value  of 
shares.  The  capital  stock  on  which  these 
dividends  are  paid  comprises  common  stock 
amounting  at  par  to  $23,879,400,  and  pre- 
ferred stock  amounting  at  par  to  $3,000,000, 
an  aggregate  of  $26,879,400  which,  with 
premiums  amounting  to  $2,707,000,  makes  a 
total  investment  of  $29,586,828.  The  real 
dividends  therefore  are  for  the  first  two 
years  4.74  per  cent.,  for  the  next  two  years 
5.15  per  cent.,  and  thereafter  5.55  per  cent, 
on  actual  cash  investment. 

When  the  state  trustees  took  over  the  rail- 
way on  July  1,  1918,  they  found  a large 
number  of  cars  totally  unfit  for  use,  much  of 
the  remaining  rolling  stock  of  obsolete  type 
unclean  and  unpainted,  many  miles  of  track 
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badly  worn  and  some  unsafe,  power  plant  in 
part  out  of  date  and  repair  shops  inadequate. 
The  service  was  approaching  the  point  of 
collapse.  The  trustees  faced  an  imperative 
need  of  new  capital  and  larger  revenue.  For 
capital  two  million  dollars  were  available 
from  the  proceeds  of  the  preferred  stock 
authorized  in  the  act  establishing  public 
control.  This  was  immediately  applied 
toward  the  purchase  of  two  hundred  and 
fifty  new  cars.  Fifty  centre  entrance  trailers 
have  been  received  and  are  being  placed  on 
various  parts  of  the  system.  The  delivery 
of  the  remaining  two  hundred  cars,  delayed 
by  war  conditions,  is  assured  within  the  next 
four  months. 

No  more  capital  stock  can  be  issued  be- 
cause by  law  it  must  be  issued  at  par  and 
the  market  price  has  been  continuously  be- 
low par.  No  more  bonds  can  be  lawfully 
issued  because  the  bonds  outstanding  equal 
the  outstanding  stock  and  premiums.  There 


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was  one  source  of  additional  capital.  This 
was  the  Cambridge  Subway.  The  Company 
had  been  allowed  to  build  and  own  it  as  an 
exception  to  the  well  settled  and  sound 
policy  that  forbids  private  ownership  of 
public  highways.  Every  other  subway  in 
Boston  has  been  built  and  owned  by  the 
public. 

The  trustees  submitted  to  the  legislature 
a bill  to  authorize  the  purchase  of  this  sub- 
way by  the  state  as  agent  for  the  communi- 
ties which  the  subway  serves.  The  price 
named  was  less  than  actual  cost  and  far  be- 
low cost  of  replacement.  The  subway  was 
to  be  leased  to  the  company  at  a rental  suf- 
ficient to  meet  the  interest  on  the  state  loan 
and  to  provide  a sinking  fund  from  which 
to  pay  eventually  the  purchase  price  of  the 
subway.  The  bill  was  passed  by  the  Senate 
but  was  rejected  by  the  House  of  Represen- 
tatives. This  was  peculiarly  unfortunate  for 
the  reason  that  while  the  proceeds  of  the 


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subway  could  only  be  invested  in  permanent 
improvements,  such  investment  would  mean 
large  operating  economies.  To  illustrate,  a 
yearly  saving  of  one  hundred  and  twenty 
thousand  dollars  would  be  realized  through 
the  installation  of  rotary  converters  at 
power  stations.  Each  additional  car  would 
lessen  cost  of  transportation,  adequate  re- 
pair shops  would  lessen  cost  of  maintenance. 

The  statute  establishing  public  control  im- 
posed upon  the  trustees  three  definite  obli- 
gations. It  provides  that  “the  trustees  shall 
within  sixty  days  after  their  appointment 
and  qualification  fix  and  put  in  operation 
rates  of  fare  which  in  their  judgment  will 
produce  sufficient  income  to  meet  the  cost  of 
service.” 

Again  it  provides  that  “if  on  the  last  day 
of  June,  1919,”  it  appears  that  “during  the 
preceding  three  months  the  income  has  been 
less  than  the  cost  of  the  service,”  the  trus- 


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tees  shall  within  one  month  thereafter  put 
into  effect  “a  higher  grade  of  fare.” 

It  provides  further  that  it  shall  be  the 
duty  of  the  trustees  to  maintain  the  property 
of  the  company  in  good  operating  condition, 
and  to  make  “provision  for  depreciation, 
obsolescence  and  rehabilitation.” 

When  the  railway  was  turned  over  to  the 
trustees  the  deficit  for  the  preceding  six 
months  of  private  management,  though  no 
dividends  had  been  paid  and  little  attempt 
made  to  maintain  the  property,  was  five 
hundred  and  seventy  thousand  dollars.  In 
the  first  month  of  public  control,  namely, 
in  July,  during  which  the  five  cent  fare  was 
continued,  the  deficit,  augmented  by  divi- 
dend rental,  maintenance  charges,  higher 
cost  of  supplies  and  materials,  wage  increase 
and  rental  of  the  Dorchester  Tunnel,  was 
seven  hundred  thousand  dollars.  The  trus- 
tees introduced  a seven  cent  fare.  That 
fare  failed  to  meet  the  cost  of  service  by 
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about  $600,000  per  month.  An  eight-cent  fare 
was  then  established  which  has  been  in 
force  since  December  1,  1918. 

The  eight  cent  fare,  after  a thorough  test, 
has  also  failed  to  meet  the  cost  of  service, 
the  net  operating  cost  for  the  six  months 
ending  May  31,  1919,  having  been  $1,519,974 
in  excess  of  the  receipts. 

The  statute  provides  that  at  the  end  of 
the  year  which  closes  today  accumulated  de- 
ficits shall  be  met  by  a payment  from  the 
state  treasury,  the  amount  so  paid  to  be  as- 
sessed upon  the  cities  and  towns  in  which 
the  railway  is  located.  There  is  a common 
notion  that  this  payment  of  deficits  is  a 
contribution  by  tax  payers  to  car  riders.  On 
the  contrary  the  statute  makes  it  a loan  to 
be  repaid  to  these  communities  when  and  as 
fast  as  receipts  shall  exceed  the  cost  of  serv- 
ice. The  car  rider  continues  to  carry  the 
entire  burden  of  the  service. 


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Under  the  statute  as  quoted,  the  trustees 
are  now  required  to  advance  the  fare.  A 
study  of  receipts  and  expenditures  shows 
that  it  would  l/e  unwise  if  not  unlawful  to 
experiment  with  a nine  cent  fare.  The  aver- 
age cost  of  carrying  a passenger  under 
existing  conditions  without  consideration  of 
the  obligation  to  repay  deficits  or  the  o*t- 
conre  of  the  pending  arbitration  over  a 
further  advance  in  wages,  exceeds  nine  cents. 
There  is  also  to  be  considered  the  uncertain- 
ty of  the  effect  of  the  higher  fare  upon  net 
revenue  owing  to  loss  of  passengers.  Under 
the  eight  cent  fare  there  was  in  December  a 
loss  of  nearly  15  per  cent,  in  travel.  From 
the  natural  growth  in  business  and  from  re- 
turning patronage  that  percentage  had  grad- 
ually fallen  in  May  to  nine  per  cent.  What 
the  loss  will  be  under  a still  higher  fare  no 
one  can  predict.  Under  the  circumstances 
the  new  fare  has  been  fixed  at  ten  cents. 

Within  the  year  operating  expense  has 


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been  reduced  wherever  it  seemed  practicable 
without  injury  to  the  service.  The  number 
of  officials  and  in  several  instances  the 
amount  of  salaries  has  been  reduced.  Legal 
expenses  have  been  substantially  lessened 
and  the  operating  department  reorganized. 

Believing  that  state  officials  should  come 
in  direct  touch  with  the  public  and  their 
representatives  in  state,  city  or  town  gov- 
ernment, the  trustees  have  employed  no 
legislative  agents  or  other  intermediaries. 

There  are  certain  items  in  the  cost  of 
operation  that  have  special  interest : 

Two  million  four  thousand  dollars  is  an- 
nually reserved  for  depreciation.  For  the 
eleven  months  ending  May  31,  1919,  for 
which  complete  figures  of  operating  cost  are 
available,  the  charge  amounts  to  $1,837,000. 
This  reserve  is  based  upon  independent  ex- 
pert opinion  as  to  what  should  be  set  aside 
yearly  in  order  to  provide  for  renewals  and 
replacement  as  necessity  arises.  It  is  based 


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upon  the  constant  wear  and  tear  in  the  use 
of  depreciable  property.  The  plight  in 
which  street  railway  companies  are  found 
here  and  elsewhere  is  largely  due  to  the 
neglect  of  this  operating  expense  for  which 
the  statute  properly  requires  provision. 
Applied  to  the  individual  fare  since  De- 
cember i,  1918,  the  increased  allowance  for 
depreciation  amounts  to  .497  cents  per 
passenger. 

In  the  eleven  months  $1,243,2 22  have  been 
expended  in  rental  dividends  to  stockholders 
which  annually  aggregate  $1,403,970  as  the 
fixed  return  upon  their  investment.  This 
applied  to  individual  fare  amounts  to  .416 
cents  per  passenger  during  the  past  six 
months. 

While  the  legal  title  to  this  propertv  is 
vested  in  the  stockholders,  the  complete  con- 
trol has  passed  to  public  trustees.  Stock- 
holders have  no  voice  in  the  management, 
and  no  control  over  service  receipts  or  ex- 


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penditures.  The  trustees  serve  no  private 
interests. 

One  million  three  hundred  sixty-five  thou- 
sand six  hundred  twenty-six  dollars  have 
been  paid  to  the  City  of  Boston  in  subway 
rentals  that  now  represent  an  annual  charge 
of  $1,491,560,  the  amount  having  been  in- 
creased this  year  by  $473,000  upon  the  open- 
ing of  the  Dorchester  tunnel.  These  rentals 
in  the  opinion  of  the  trustees  are  unjust  to 
the  car  rider.  The  additional  amount  as- 
sumed during  the  period  of  the  eight  cent 
fare  as  applied  to  the  individual  fare  has 
cost  .183  cents  per  passenger.  A bill  was 
introduced  in  the  Legislature  to  relieve  them 
from  this  burden  during  public  control  of 
the  railway  but  failed  of  enactment. 

Twelve  million  two  hundred  seventy-two 
thousand  one  hundred  eighty-five  dollars 
have  been  spent  during  the  eleven 
months  for  wages  which  thus  con- 
stitute forty-five  per  cent,  of  the  total 


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of  fixed  charges  and  operating  ex- 
penses. The  total  wage  increase  for  the 
period  was  $3,996,883,  of  which  $2,750,000 
was  due  to  the  award  of  the  War  Labor 
Board,  the  remainder  due  to  the  increase  in 
going  rates  of  craft  organizations  and  to  ad- 
ditional service  and  higher  standard  of  main- 
tenance. The  increase  in  wages  as  applied 
to  the  individual  fare  amounted  to  1.751 
cents  per  passenger,  in  the  six  months 
period  ending  May  31st.  Under  present 
conditions  the  trustees  declined  to  grant  the 
recent  demand  of  employes  for  still  higher 
wages.  In  consequence  that  demand  is  now 
under  consideration  by  the  War  Labor 
Board  before  which  final  arguments  were 
made  last  Wednesday  in  Washington. 

Two  million  three  hundred  twelve  thou- 
sand seven  hundred  twenty-eight  dollars 
have  been  expended  for  maintenance  and  re- 
pairs of  track  and  repaving  of  streets  for  no 
part  of  which  any  provision  is  made  in  the  re- 


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serve  for  depreciation.  This  item  divides  into 
expenditures  necessary  to  insure  the  safe  op- 
eration of  cars,  expenditures  required  by  the 
relocation  of  tracks  to  permit  the  use  of  new 
cars  and  expenditures  incident  to  the  street 
improvements  which  are  ordered  by  city  and 
town  governments.  The  trustees  are 
obliged  to  accompany  such  street  improve- 
ments with  reconstruction  of  tracks  that  in 
certain  instances  would  not  otherwise  be  re- 
placed for  some  years  to  come.  The  amount 
expended  for  this  latter  work  during  the 
eleven  months  was  $511,000. 

Increased  cost  from  rising  prices  of  sup- 
plies and  materials  has  been  felt  most  in  the 
matter  of  coal,  which,  during  the  period 
named,  has  advanced  in  price  to  such  an 
extent  as  to  make  an  additional  outlay  of 
$405,000  and  when  applied  to  the  individual 
fare,  amounted  to  .126  cents  per  passenger 
during  the  six  months  ending  May  31st. 

To  meet  the  deficit  which  has  been  cre- 


13 


ated  by  reason  of  the  added  cost  of  the 
service,  the  trustees  have  established  a ten 

cent  fare  to  become  effective  on  the  ioth 
day  of  July. 

Public  interest  in  the  service  is  as  keen  as 
it  is  in  the  fare.  To  imagine  that  a new 
management,  hampered  by  the  depreciated 
character  of  the  railway,  unprecedented  war 
conditions,  and  the  lack  of  capital  and  in- 
come, could  promptly  bring  the  impaired 
service  to  a proper  standing,  gauge  the  cost 
and  fix  a fare  commensurate  and  reasonably 
cheap,  is  to  imagine  what  common  sense  for- 
bids. Realizing  what  their  task  meant,  the 
trustees  laid  out  a program  which  will  cover 
a term  of  five  years.  A substantial  begin- 
ning has  been  made  toward  the  consumma- 
tion of  that  program  bringing  with  it  new 
cars,  new  track,  better  trains  in  subways, 
larger  accommodations  on  surface  lines, 
cleanliness  and  ventilation  of  cars. 

What  of  the  future?  Without  being  un- 


14 


duly  optimistic  the  trustees  believe  that  the 
cost  of  the  service  measured  by  fares,  is 
reaching  its  highest  level ; that  gradual  im- 
provement in  service  with  gradual  reduc- 
tion in  fares  is  to  be  expected.  In  brief,  they 
are  confident  that  the  goal  which  they  have 
had  in  view — a service  of  high  standard  at 
lowest  possible  cost — is  not  unattainable. 
The  time  within  which  this  goal  can  be 
reached  will  depend  upon  the  promptness 
with  which  the  deficit  of  the  past  year  is 
made  good  and  upon  the  relief  that  the  Leg- 
islature may  give  through  just  and  wise 
legislation. 

James  F.  Jackson,  Chairman , 
Winthrop  Coffin, 

Stanley  R.  Miller, 

Sam'l  L.  Powers, 

John  F.  Stevens, 

Trustees. 


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